The head of a U.S. CHIPS and Science Act-funded center devoted to digital twins for chip manufacturing has informed its 121 members that the U.S. Department of Commerce will terminate its US $285-million five-year contract.

According to its website, the SMART USA Institute has the goal of uniting academic and industrial labs to create “virtual manufacturing replicas” that reduce development and manufacturing costs by more than 35 percent, cut manufacturing development time by 30 percent, and improve manufacturing yields by 40 percent. It also aimed to train 110,000 workers over five years. This is the second CHIPS Act related institution to be defunded by the federal government since the second Trump administration began in January 2025.

SMART stands for “semiconductor manufacturing and advanced research with twins”, and the organization began life when it won a government contract in January 2025. It has a complicated structure. The organization is headquartered in Raleigh, N.C., and it is part of a network of federally-sponsored manufacturing innovation institutes called Manufacturing USA, which predates the CHIPS Act. SMART is a public-private partnership operated by SRC Manufacturing Consortium Corporation, which is a wholly owned subsidiary of the Semiconductor Research Corporation (SRC). Established in 1982, and backed by the semiconductor industry, SRC funds R&D at universities and has sponsored more than 15,000 students.

According to an email dated 12 December, sent to SMART USA participants, and obtained by IEEE Spectrum, Commerce notified the organization of the termination on 10 December. The funds were withdrawn “for convenience,” an option that allows the government to unilaterally withdraw from an agreement that is written into many federal contracts, the email states. Requests for comment from the Commerce Department were not returned by press time.

“Although DOC acknowledged that we built an effective organization and met all performance targets, the administration has chosen not to support R&D and workforce development in this direction,” Todd Younkin, SMART USA’s executive director and the CEO of SRC, wrote in the email.

What Comes Next?

Details of what happens next are still coming, but Younkin wrote that the organization would hold a Q&A webinar on Wednesday 17 December to answer member questions.

“While this is a setback, it doesn’t diminish the importance of the work or the strength of our shared commitment to advancing leadership in microelectronics and advanced packaging,” he wrote in the email. He added that SRC will continue to fund research through its other programs.

In response to IEEE Spectrum’s questions, Younkin’s office confirmed that the email was genuine.

Younkin reiterated that SMART USA had met its performance targets, and that the organization’s performance was not the reason for the move. The organization added that it is “coordinating a responsible transition with [the Commerce Department] and members.”

Regarding SRC, Younkin stated: “While this transition is challenging, it does not define our future. We have united the semiconductor community for decades, and will continue to do so. SRC will continue to drive industry-led innovation, fostering strong ecosystems and collaborations. That includes empowerment of the next generation of semiconductor professionals, who must deliver the next era of compute and communications. Together, we will turn this moment into momentum.”

In a statement, David N. Henshall, chief operations officer for SMART USA, and senior vice-president for SRC, said: “Federal contracting decisions evolve over time, and ‘termination for convenience’ is an established mechanism in those agreements and is not a reflection of the significant work we were doing. What’s clear is the industry’s continued need: the challenges in microelectronics and advanced packaging remain, and SRC’s programs provide a durable path forward for collaborative R&D and talent.”

“NIST has a reputation as a neutral and steadfast partner that can work with any industry and academic organization. This reputation is very much at risk”—Zoe Lofgren and Haley Stevens, House of Representatives Committee on Science Space, and Technology

The addition of SMART USA to SRC’s portfolio led to some disruption, according to an academic participant who did not wish to be named. This scientist’s three-year, $450,000 proposal had been accepted for funding in 2025, 2026, and 2027 under SRC’s Global Research Collaboration program. But, early in 2025, years two and three of the grant were canceled and the scientist was invited to apply to SMART USA instead.

The new program required expanding the scope of the project, boosting the number of academic participants, and seeking participation and funding from SMART USA members. He joined up with researchers from eight other universities and a chipmaking equipment firm, then spent the summer writing a new proposal and trying to get SMART USA industry members on board. By August, “we were not able to secure enough funding commitments from SMART USA members to even submit,” he said, adding that many of the SRC member companies that the group had been working with had not joined SMART USA by the time of submission, and those that had seemed to be putting in very little cash into the effort.

Commerce vs. the CHIPS Act

The withdrawal of funding from SMART USA echoes an earlier move that withdrew $7.4 billion from Natcast, the public-private partnership set up to run the National Semiconductor Technology Center, the CHIPS Act’s main R&D effort.

However, the two events are starkly different in tone and publicity. Commerce has so far made no public statement about SMART USA. But in a public letter announcing the withdrawal of funds from Natcast, Commerce Secretary Howard Lutnick implied impropriety on the part of organization, its CEO—IEEE Frederik Philips Award winner Dierdre Hanford—and other experts involved in its creation. Within weeks, Natcast was forced to lay off the majority of its staff and has now folded.

In a letter to Craig Burkhardt, Acting Undersecretary of Commerce for standards and technology, date 17 December, two members of the House of Representatives Committee on Science, Space, and Technology questioned the move to defund SMART USA.

California Democrat Zoe Lofgren and Michigan Democrat Haley Stevens “question the Department’s recent decisions to halt or delay semiconductor research and development (R&D) programs and awards authorized by Congress, and break existing obligations to industry and academia.”

The lawmakers worry that these moves cause long term harm to the National Institute of Science and Technology (NIST), the agency within Commerce that implements the CHIPS Act. “NIST has a reputation as a neutral and steadfast partner that can work with any industry and academic organization,” they write. “This reputation is very much at risk. Few companies would willingly seek partnership with an organization that cancels its obligation on a whim.”

The letter then went on to criticize NIST’s solicitation of R&D proposals made in September in the wake of the destruction of Natcast. “NIST seems to have pivoted its model to that of an investment accelerator or venture capital fund, funding riskier research in exchange for intellectual property and equity,” they write. “While there is a time and place for the venture capital model, especially in the private sector, dedicating the entire CHIPS R&D program to it would unquestionably fail to meet the clear text and intent of the CHIPS Act.”

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The U.S. CHIPS Act Takes Another Hit

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